Question

Suppose you are going to receive $9,500 per year for five years.
The appropriate interest rate is 11 percent.

**a.** What is the present value of the payments if
they are in the form of an ordinary annuity? **(Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)**

Present value $

What is the present value of the payments if the payments are an annuity due?

Present value $

Future value $

What is the future value if the payments are an annuity due?

Future value $

(Click to select)Ordinary annuity or Annuity due

Which has the higher future value?

(Click to select)Ordinary annuity or Annuity due

Answer #1

This question requires application of TVM concept - annuities' value.

P = $9,500, r = 11%

a) PV of an ordinary annuity (payments at the end of period) is mathematically represented as:

**PV = $35,111.02**

PV of an annuity due (payments at the beginning of period) is mathematically represented as:

**PV = $38,973.23**

b) FV of an ordinary annuity (payments at the end of period) is mathematically represented as:

FV = $59,164.11

FV of an annuity due (payments at the beginning of period) is mathematically represented as:

FV = $65,672.17

c) As displayed in calculations above:

Higher present value is for Annuity Due

Higher Future Value is for Annuity Due

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